M/s Merredian Promoters Pvt. Ltd., Visakhapatnam V. The DCIT, Central Circle-2, Visakhapatnam

ITA 76/VIZ/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50242 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 27-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 08-02-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: TH L PETER
• Assessee Lawyers: C V S MURTHY
• Section: 194C

Judgement Text

ITA NO75, 76 & 127 OF 2010 MERRIDIAN PROMOTERS (P) LTD., VSKP. 1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 75&76 /VIZAG/ 20 10 ASSESSMENT YEAR S : 2005 - 06 & 2006 - 07 M/S. MERRIDIAN PROMOTERS (P) LTD VISAKHAPATNAM VS. DCIT CENTRAL CIRCLE - 2 VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.AACCM 7719D ITA NO.127/VIZAG/2010 ASSESSMENT YEARS : 2005 - 06 DCIT CENTRAL CIRCLE - 2 VISAKHAPATNAM VS. M/S. MERRIDIAN PROMOTERS (P ) LTD VISAKHAPATNAM (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI C.V.S. MURTHY, CA RESPONDENT BY: SHRI TH.L. PETER, CIT(DR) ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER:- THESE APPEALS ARE PREFERRED BY THE ASSESSEE AS WE LL AS THE REVENUE AGAINST THE RESPECTIVE ORDER OF THE CIT(A). SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE MAIN ISSUE INVOLVED IN THESE APPEALS IS WITH REGARD TO THE ADDITIONS MADE ON ACCOUNT OF INFLATED LABOUR EXPENS ES. THE FACTS ON THIS ISSUE BORNE OUT FROM THE RECORD ARE ALMOST SIMILAR IN BOTH THE ASSESSMENT ORDERS I.E. 2005-06 & 2006-07. THE MAIN ISSUE WAS DISCUSSED BY THE CIT(A) IN THE ASSESSMENT YEAR 2005-06 AND THE DECISION TAK EN BY THE CIT(A) IN THIS YEAR WAS FOLLOWED IN THE ASSESSMENT YEAR 2006-07. THEREFORE, WE DISCUSSED THE FACTS PERTAINING TO THE ASSESSMENT YEAR 2005-06 AND THE BRIEF FACTS AVAILABLE ON RECORD ARE THAT OUT OF TOTAL EXPENDITU RE CLAIMED UNDER THE HEAD ITA NO75, 76 & 127 OF 2010 MERRIDIAN PROMOTERS (P) LTD., VSKP. 2 LABOUR EXPENSES, A SUM OF RS.36,26,032/- HAS BEEN D ISALLOWED BY THE A.O. AS INFLATED LABOUR CHARGES AND THE SAME WAS ADDED TO T HE TOTAL INCOME OF THE ASSESSEES. DURING THE COURSE OF ASSESSMENT PROCEED INGS, THE A.O. NOTICED THAT THERE WAS AN ABNORMAL INCREASE IN THE LABOUR C HARGES DEBITED IN THE MONTH OF MARCH, 2005. A NET DEBIT OF RS.60,66,871/ - WAS MADE IN THE MONTH OF MARCH, 2005 BY PASSING A GENERAL ENTRY THROUGH T HE JOURNAL TO CREATE DEBIT BALANCE IN THE NAME OF THE FOLLOWING PARTIES:- 1. SRI B.H. SRINIVAS 2. SRI N. SIVA SUBRAHMANYAM 3. SRI P. SATHI RAJU (PS RAJU) 4. SRI R. SHYAM SUNDER 5. SRI NVSN KUMAR 3. ON 1.4.2004, THE ABOVE SAID AMOUNT WAS DEBITED T O THE ACCOUNTS OF THE ABOVE FIVE PERSONS AND A CORRESPONDING CREDIT W AS GIVEN TO ADVANCES FOR LABOUR EXPENSES. THUS, THE LABOUR CHARGES WHICH AR E ALLEGED TO HAVE BEEN PAID IN ADVANCE ARE ADJUSTED AT THE YEAR END BY CRE DITING THE SUB-CONTRACTORS ACCOUNT AND DEBITING THE LABOUR CHARGES ACCOUNT. T HE A.O. WAS OF THE VIEW THAT BOGUS LABOUR EXPENSES WERE BOOKED AGAINST THE FICTITIOUS ADVANCES ONLY AFTER THE DATE OF SEARCH. 4. THE A.O. FURTHER NOTED THAT THE LEDGER ACCOUNT O F P.S. RAJU, A CREDIT OF RS.7,25,206/- WAS PASSED FROM JOURNAL. THUS A FICT ITIOUS ENTRY WAS PASSED BY CREATING A BOGUS ADVANCE FOR EXPENSES ACCOUNT ON 1. 4.2004 AGAINST WHICH LABOUR CHARGES ACCOUNTS WERE DEBITED, THUS, INFLATE D THE LABOUR CHARGES WHICH ARE CLAIMED AS EXPENSES IN THE PROFIT AND LOS S ACCOUNT AND TDS WAS ALSO DEDUCTED TO THE EXTENT OF RS.42,952/-. SIMILA RLY, INSTEAD CREDITING N.S. SUBRAMANIAM ACCOUNT BY RS.7,25,206/- THE ASSESSEE C OMPANY PASSED TWO ENTRIES SIMULTANEOUSLY THROUGH THE JOURNAL. THE AC COUNT OF N.S. SUBRAMANIAM WAS CREDITED BY AN AMOUNT OF RS.13,59,5 55/- BY LABOUR CHARGES AND HIS ACCOUNT WAS DEBITED BY AN AMOUNT OF RS.6,34,349/-. THUS THE NET EFFECT IS CREDITING HIS ACCOUNT BY RS.7,25, 206/- (13,59,555 6,34,349 ITA NO75, 76 & 127 OF 2010 MERRIDIAN PROMOTERS (P) LTD., VSKP. 3 = 7,25,206). IN THE LEDGER ACCOUNT OF B.S. SRINIVA SARAJU THE NET EFFECT OF THE TRANSACTION IS CREDITING HIS ACCOUNT BY RS.7,25,206 /- AND DEBITING LABOUR CHARGES ACCOUNT BY RS.7,25,206/-. IN ANOTHER ACCOU NT OF SHRI R. SHYAM SUNDER AGAIN THE NET EFFECT COMES TO RS.7,25,206/-. THIS ACCOUNT IS CREDITED BY RS.14,45,503/- AND LABOUR CHARGES ACCOUNT IS DEB ITED BY RS.7,20,297/- SO THE NET EFFECT COMES TO RS.7,25,206/-. 5. THE A.O. IS ALSO OF THE VIEW THAT THE MANAGING D IRECTOR OF THE COMPANY SIPHONED OFF CASH RECEIPT OF THE COMPANY WI TH THE INTENTION TO SUPPRESS THE RECEIPT OF THE COMPANY SINCE FY 2003-0 4 AND SUBSEQUENTLY HE TRIED TO BRING ENTIRE RECEIPT INTO THE BOOKS OF ACC OUNT AS HE HAD ACQUIRED PROPERTIES IN HIS NAME AND IN THE NAME OF FAMILY ME MBERS. THUS, A SIGNIFICANT PORTION OF THE CASH HAD GONE INTO THE P AYMENT OF ON MONEY. THE CASH IS BROUGHT BY THE MANAGING DIRECTOR INTO THE C OMPANY AND IT IS FURTHER DISTRIBUTED IMMEDIATELY TO FIVE PERSONS NAMELY SHRI N.S. SUBRAMANYAM, SHRI B.S. SRINIVASARAJU, SHRI P. PATTIRAJU, SHRI SHYAM K UMAR AND SHRI N.V.S.N. KUMAR. THUS, THE AO HAS DISALLOWED THE AMOUNT OF R S.36,26,032/- AND RS.17,20,000/- IN THE AY 2005-06 AND RS.1,17,50,529 /-, RS.22,05,500/- AND RS.38,97,000/- IN THE AY 2006-07 IN RESPECT OF BOG US CLAIM UNDER THE HEAD LABOUR CHARGES. 6. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT( A) WITH THE SUBMISSION THAT THE A.O. HAS APPROACHED THE ENTIRE ISSUE OF LABOUR CHARGES WITH A PRECONCEIVED NOTION THAT THE ASSESSEE COMPAN Y HAS INDULGED IN INFLATION OF LABOUR CHARGES. THE TOTAL COST OF THE PROJECT I.E. MERRIDIAN SEASHELL PROJECT IS 12.38 CRORES AND THE LABOUR CHA RGES INCURRED IN THE SAME PROJECT IS OF RS.3.67 CRORES WHICH WORKS OUT TO 29. 6% I.E. THE PERCENTAGE OF LABOUR CHARGES ON COST OF THE PROJECT. IT WAS FURT HER EXPLAINED THAT TOTAL LABOUR CHARGES RELATING TO ALL PROJECTS DEBITED TO PROFIT & LOSS ACCOUNT IN THE FINANCIAL YEAR 2004-05 AND 2005-06 RELEVANT TO THE ASSESSMENT YEARS 2005- 06 & 2006-07 IS OF RS.4.40 CRORES. IF THE ADDITION /DISALLOWANCE MADE BY THE A.O. AMOUNTING TO RS.2.31 CRORES IS DEDUCTED FROM T HE TOTAL LABOUR COST OF ITA NO75, 76 & 127 OF 2010 MERRIDIAN PROMOTERS (P) LTD., VSKP. 4 RS.4.40 CRORES, THE PERCENTAGE WOULD GO UP TO 52.61 % WHICH IS QUITE UNREASONABLE IN THE LINE OF CONSTRUCTION BUSINESS. IT WAS FURTHER CLARIFIED THAT LABOUR CHARGES RELATING TO THIS PROJECT INCURRED AN D CLAIMED BY THE ASSESSEE IN A.Y. 2005-06 & 2006-07 ARE AT RS.93,45,730/- AND RS.2,73,79,336/- RESPECTIVELY. 7. SO THE LABOUR COMPONENT INCURRED AND CLAIMED BY THE ASSESSEE COMPANY WORKS OUT TO 29.6% ON THE COST OF THE PROJE CT OF THE MERRIDIAN SEASHELL. HENCE, THE LABOUR COMPONENT INCURRED AND CLAIMED BY THE ASSESSEE IS VERY REASONABLE AS IT WAS LESS THAN 30%. IT WAS ALSO CONTENDED THAT MOST OF THE LABOUR EXPENSES WERE PAID TO SUB CONTRACTORS BY DULY DEDUCTING TAX AT SOURCE U/S 194C OF THE I.T. ACT AND ALL THE SUB CON TRACTORS ARE CLEARLY IDENTIFIABLE PERSONS AND INCOME TAX PAYEES. THERE WAS NO MALAFIDE INTENTION TO DIVERT THE REVENUE IN THIS REGARD AND TRANSACTIO NS WITH SUB CONTRACTORS WERE ALL GENUINE AND THE ASSESSEE ACTED ONLY IN THE CONSIDERATION OF BUSINESS EXPEDIENCY AND ALSO WITH THE ABUNDANT CAUTION BY HA VING CONTROL OVER THE SUBCONTRACTORS AND ALSO A CHECK ON THEM NOT TO DIVE RT THE FUNDS FOR OTHER PURPOSES. 8. THE CIT(A) RE-EXAMINED THE ISSUE IN THE LIGHT OF ASSESSEES EXPLANATIONS AND BEING PARTLY CONVINCED WITH IT HE DIRECTED THE A.O. TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF 25% OF R S.36,26,032/- AND RS.17,20,000/-. 9. AGGRIEVED, THE ASSESSEE AS WELL AS THE REVENUE H AVE PREFERRED AN APPEAL BEFORE THE TRIBUNAL. 10. THE LD. COUNSEL FOR THE ASSESSEE BESIDES REITER ATING ITS SUBMISSIONS AS RAISED BEFORE THE CIT(A) HAS CONTENDED THAT THERE WAS NO FICTITIOUS ENTRIES PASSED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEES. WHATEVER AMOUNT WAS DEBITED TO THE ACCOUNTS OF THE AFORESAID FIVE PERSO NS, A CORRESPONDING CREDIT WAS GIVEN TO ADVANCES FOR LABOUR EXPENSES. THERE A FTER, THE ADVANCES FOR ITA NO75, 76 & 127 OF 2010 MERRIDIAN PROMOTERS (P) LTD., VSKP. 5 LABOUR EXPENSES ACCOUNT WAS DEBITED AS AND WHEN ADV ANCES WERE PAID IN CASH TO THE SUB CONTRACTORS TOWARDS LABOUR PAYMENT. ALL THESE PAYMENTS ARE MADE THROUGH CHEQUE ONLY AND ALL THE SUB CONTRACTOR S ARE CLEARLY IDENTIFIABLE AND INCOME TAX ASSESSEES. THE LD. COUNSEL FOR THE ASSESSEE FURTHER INVITED OUR ATTENTION THAT ALL THE LABOUR EXPENSES BOOKED B Y THE ASSESSEES ARE VERIFIABLE AND THE ASSESSING OFFICER HAS MADE ADDIT IONS ON ESTIMATE BASIS. 11. THE LD. D.R. ON THE OTHER HAND HAS PLACED HEAVY RELIANCE UPON THE ORDER OF THE A.O. BESIDES HE HAS SUBMITTED THAT TH E ASSESSEE HAS INFLATED LABOUR EXPENSES BY GIVING ADVANCES TO THE AFORESAID PERSONS ONLY WITH THE INTENTION TO REDUCE THE PROFIT IN THE IMPUGNED ASSE SSMENT YEARS. 12. WE HAVE CAREFULLY EXAMINED THE ORDER OF THE LOW ER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD AND WE FIND THAT THE A SSESSEE COMPANY HAS DEBITED A SUBSTANTIAL AMOUNT IN THE LAST DAY OF THE FINANCIAL YEAR UNDER THE GUISE OF PAYMENT TO DIFFERENT PARTIES. THE REVENUE HAS OBSERVED THAT THOUGH THE PAYMENTS WERE MADE BY CHEQUE IN FAVOUR OF SOME PARTIES BUT THE ACCOUNTS WERE UNDER THE CONTROL OF THE ASSESSEE COM PANY, THEREFORE, THE MERE PAYMENT THROUGH CHEQUE COULD NOT PROVE THE GEN UINENESS OF THE EXPENSES. IT IS A TRITE LAW THAT ONUS LIES ON THE ASSESSEE TO PROVE HIS CLAIM BY PRODUCING ADEQUATE MATERIAL BEFORE THE A.O. AND THA T IN THE ABSENCE OF SUCH MATERIAL, THE A.O. IS JUSTIFIED IN MAKING SUCH DISA LLOWANCES. WE HAVE CAREFULLY EXAMINED THE ORDER OF THE CIT(A) AND WE F IND THAT HE HAS EXAMINED EACH AND EVERY ASPECT OF THE CLAIM OF EXPENSES RAIS ED BY THE ASSESSEES. SINCE NO SPECIFIC DEFECT HAS BEEN POINTED OUT IN TH E ORDER OF THE CIT(A), WE FIND NO INFIRMITY THEREIN. WE ACCORDINGLY CONFIRM THE SAME. 13. IN ITA NO.75 OF 2010, THE ASSESSEE HAS RAISED O NE MORE GROUND WITH REGARD TO AN ADDITION OF RS.2,91,964/- TOWARDS THE DIFFERENCE IN NET PROJECT TURNOVER. FROM A CAREFUL PERUSAL OF THE ORDER OF T HE LOWER AUTHORITIES, WE FIND THAT THIS ADDITION WAS MADE ON ACCOUNT OF DIFF ERENCE BETWEEN THE NET PROJECT TURNOVER WHICH IS RS.4,00,00,304/- AND THE TURNOVER REFLECTED IN THE ITA NO75, 76 & 127 OF 2010 MERRIDIAN PROMOTERS (P) LTD., VSKP. 6 BOOKS OF ACCOUNTS OF RS.3,97,08,340/-. BEFORE THE CIT(A), ASSESSEE WAS ASKED TO RECONCILE THE DIFFERENCE BUT HE FAILED TO DO SO. SIMILAR WAS THE POSITION BEFORE US, THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) WHO HAS CONFIRMED THE ADDITIONS. ACCORDINGLY, WE C ONFIRM THE SAME. 14. IN THE RESULT, THE APPEALS OF THE ASSESSEE AS W ELL AS THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 3.6.2011 SD/- SD/- (BR BASKARAN) (SUN IL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 3 RD JUNE, 2011 COPY TO 1 MERRIDIAN PROMOTERS (P) LTD., D.NO.47 - 329/2, 5 TH LANE, DWARAKANAGAR, VISAKHAPATNAM 2 DCIT, C ENTRAL CIRCLE - 2, VISAKHAPATNAM 3 THE CI T, VISAKHAPATNAM 4 THE CIT (A) , VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM